While politicians debate the future of social security, for seniors, especially
the one-third of Americans over 65 whose social security benefits constitute
ninety percent of their total income, this ambiguity creates fear and tension.
Seniors in or approaching retirement are increasingly exploring non-traditional
avenues, like reverse mortgages, to increase or augment their cash flow without
too much disruption of their day-to-day life.
A reverse mortgage is a rapidly growing practice that helps “cash-poor
but house-rich” older homeowners convert their home equity into ready money
without necessitating a physical change. It is a loan that allows homeowners
age 62 or older to borrow against their home equity without selling their home
or incurring new monthly mortgage payments. The equity is released tax-free,
as a lump sum, a fixed monthly payment, a line of credit or any combination
How much you can borrow depends on your age, available equity, interest rates
and your lender. In general, the older you are the more equity available. Unlike
other mortgages, fees for a reverse mortgage are paid up-front. These initial
costs may be daunting, but they are the only way to unlock the equity without
selling your home.
As of October 2004, reverse mortgage volume was up 109 percent from
the previous year according to National Reverse Mortgage Lenders Association.
Factors contributing to this rapid growth include low interest rates, increasing
property values as the real estate market strengthens, and rising expenses faced
There is also greater public awareness about reverse mortgages, with credit
unions contributing to this end. For example, according to Mark Seegmiller,
Mountain America Credit Union (based in West Jordan , Utah with assets exceeding
$1.4 billion) holds seminars at their branches and ice cream socials at local
senior centers to educate current and potential members about the benefits of
a reverse mortgage.
Within credit unions, there is also a growing trend towards older members.
As the graph below indicates, over the last nine years the average age of a
credit union member has increased by a full seven years. An older member base
implies a greater pool of people who could benefit from their credit union offering
a reverse mortgage.